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World Bank Report Concludes That Financial Sanctions Imposed By Prosecuting States Are Failing To Compensate Countries Whose Officials Have Been Bribed




by:
Annie Clarke
Jamie Humphreys
James Maton
Antonio Suarez-Martinez
Edwards Wildman Palmer LLP - London Office

 
December 5, 2013

Previously published on December 3, 2013

The World Bank’s Stolen Asset Recovery Initiative (StAR) last week published a report, Left Out of the Bargain (http://star.worldbank.org/star/publication/left-out-bargain-settlements-foreign-bribery-cases-and-implications-asset-recovery), concluding that although significant out of court settlements have been agreed by countries prosecuting foreign bribery cases, little money has been returned to the countries whose officials have allegedly been bribed. The report highlights that of the nearly $6 billion monetary settlements imposed worldwide, a mere $197 million, or 3.3%, has been returned to ‘victim’ countries whose officials were bribed or allegedly bribed.

The StAR Report highlighted that the overwhelming majority of countries harmed by bribery are in the developing world and most settlements involve cases concerning state-owned enterprises and public procurement contracts. But these developing countries are rarely able to obtain any meaningful form of financial redress even if their own legal systems would allow them to do so.

The StAR report firstly calls on ‘victim states’ to take the lead in bringing domestic investigations against the bribers and the bribes in order to improve their chances of recovering corrupt assets, or obtaining compensation. Our experience is that, unfortunately, successfully prosecuting corrupt officials or the corrupters is not straightforward; indeed, sometimes it can either be impossible or take an unacceptably long time. There are many well-rehearsed reasons why punishing corrupt officials can be difficult including: state immunity, political influence or lack of political will, lack of law enforcement capacity or capability, and the flight or death of the corrupt official. So if you cannot arrest the corrupt individuals, at the very least attempts should be made to arrest their ill gotten assets.

All legal avenues need to be explored to obtain redress for the victim state, including criminal, civil forfeiture or private civil proceedings. At the outset of any initiative to punish corruption, a holistic view should be taken as to how to deprive the corrupt of the fruits of their wrongdoing and compensate the victim country in a way that ensures its citizens directly benefit from recoveries.

Settlements themselves present an opportunity for countries to obtain redress. However, as the StAR Report flags, they create specific challenges for the asset recovery process. As settlements most commonly occur during the pre-trial phase of a criminal investigation/prosecution, victim states may remain unaware of the case until it is over, leaving little chance of effectively claiming any assets recovered. Where there is an opportunity for other affected countries to formally participate in the investigation or prosecution, the time-frame in which to participate may be limited by law and the prosecuting country may perceive an additional party as hindering the settlement negotiation process.

Left out of the Bargain makes a number of recommendations to enable victim states to best take advantage of their options for redress including:

  • Countries pursuing settlements should, wherever possible, transmit information spontaneously to other affected countries concerning the basic facts of the case in line with UNCAC;
  • Countries investigating corruption and contemplating settlements should inform victim states of the legal avenues available to them to participate in the investigation and/or claim compensation as part of the settlement or outside its parameters;
  • Countries should consider permitting their courts or other competent authorities to recognise the claims of victim countries in the context of settlements;
  • Basic information on settlements should be proactively shared, including the underlying facts of the case, evidence gathered and any self-disclosure, which might enable victim countries to commence their own criminal proceedings, launch private civil proceedings to obtain financial redress and rescind affected public contracts.

The fact countries can obtain the benefit of a revenue stream from windfall fines from settlements concerning foreign corruption with none of those proceeds going to the victim country, has been largely a taboo subject. Until now. We welcome StAR’s decision to publicise this reality and to encourage greater international debate and cooperation on improving this situation.

We agree that any settlements involving foreign corruption should allow the participation of the victim state wherever possible. Any fine imposed should have regard to the fact that reparation should be kept at a maximum. Corrupt persons and entities should be punished and ultimately deprived of the financial benefits of their wrongdoing, but the only beneficiary of the monetary sanctions should not just be the prosecuting countries where say the bribing company is located. There needs to be a step change in approach so that victim states achieve some redress. If the victim state is non-cooperative because the recipients of bribes are still in power or have political influence, then means should be devised to enable the true victims of corruption, a country’s citizens, to receive the compensation directly through say bespoke development funds or charities. There are examples where mechanisms have been introduced to repatriate assets so that such recovered funds have been used for development and their use closely monitored. Where redress is not achievable through settlements, then countries investigating that corruption should provide a willing victim state with a comprehensive overview of all the ways of obtaining compensation, including private civil proceedings, together with assistance (including the sharing of information and evidence in certain prescribed circumstances), to assist any such initiative.

In some people’s eyes, the original country of corruption may not be a ‘victim’ per se, with its senior officials having perhaps been complicit in the wrongdoing. But it is untenable to continue to allow its innocent citizens, who in many cases are the world’s poorest and who are directly and indirectly impacted by the corruption, to continue to be “left out of the bargain”.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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